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Saturday, August 24, 2013

The Basics Of Profit Sharing

The name itself explains what a profit sharing is. It is basically a plan that shares profits of the company to its employees. Individual employee receives a portion or percentage of those gains depending on the company's earnings. Primarily, this plan also declares the company's status or business per se.

The share for each employee varies depending on the annual condition of the company and it is not consistent year after year. Nonetheless, this is also one venue to indulge employees a sense of company ownership. The company opts what portion of the earnings will be shared.

There are two types of profit sharing plan, one is cash and the other one is called deterred. In a cash plan, the share is usually given out as an incentive in the form of either stocks or cash. The amount relies solely on the contract and the company's actual profit. Liquid asset always has advantage and disadvantage. Employees will have the luxury to enjoy the share forthwith unfortunately it will also be taxed immediately.

To shield employees from taxes, some companies resort to deterred plan route. With this, the incentive is deposited into individual retirement accounts for each of the employee. The amount placed in IRAs or 401K plans is tax deferred and it will grow virtually tax free, but once the money is withdrawn out of these accounts, taxes will be charged as expected.

Moreover, these profit sharing plans will always beget benefits for both the company and employees. This one provides high esteem to employees and the company will have their employee's loyalty. Since they get compensation out of their hard works there's that sense of ownership.

Happier employees means efficiency and effectiveness and increase in productivity which will be good for employees' share of the company's earnings and company's financial gain.